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Another Increase in PBGC Premiums?

Bipartisan budget deal includes another substantial PBGC premium increase; business groups contend it would encourage more companies to exit pension plans.

The federal budget deal crafted this week by Representative Paul Ryan and Senator Patty Murray includes a significant increase in the premiums that businesses with pension plans have to pay the Pension Benefit Guaranty Corporation (PBGC) to protect plan participants in the event of a plan sponsor's failure. The Wall Street Journal estimates that the total impact of the budget deal on plan sponsors would be around $7.9 billion. This comes on the heels of an approximately $9 billion increase that was part of last year's MAP-21 legislation.

Seventeen organizations sent a letter to members of Congress last week, requesting that they oppose any PBGC premium increases. "Employers are still coping with the last increase to PBGC premiums, which has not yet been fully implemented," the letter reads. "In the span of just two years, the flat rate premium will have increased by 40 percent, and in three years, the variable rate premium will have increased by over 100 percent, which translates into millions of dollars in additional costs for companies that offer pension benefits to their employees. ... It is premature for Congress to consider additional premium increases before the most recent increases are fully realized."

The ERISA Industry Committee (ERIC), one of the letter's signers, released a statement today that it "is deeply troubled" by the proposed budget. "ERIC is adamantly opposed to the PBGC premium increase included in this budget agreement," says Scott Macey, the group's president. "This premium increase will only further accelerate the demise of the pension system, as plan sponsors become increasingly discouraged from voluntarily providing pensions. It only provides another reason for sponsors to exit this system."

Adds James Klein, president of the American Benefits Council, another signer of the letter to Congress: "It is simply unacceptable that members of Congress of both parties ... view pension plans as a piggy bank for other budget priorities, without regard for the real-life policy implications of their actions."

Both organizations contend that the PBGC's reported deficit is overstated. "Even using the PBGC's own numbers in its latest annual report, the agency's so-called pension funding deficit for single employer plans actually went down this year," Macey says.

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